Choice of Law in Veil Piercing Litigation: Why Courts Should Discard the Internal Affairs Rule and Embrace General Choice of Law Principles
New York University Annual Survey of American Law, Vol. 64, pp. 85-128, 2008
37 Pages Posted: 17 Dec 2008
Date Written: November 7, 2008
When a corporate creditor seeks to "pierce the corporate veil" to hold an individual shareholder personally liable for the corporation's obligations, a question is often presented as to which state's body of law should be applied to resolve the controversy. Most courts currently regard such a controversy as primarily an "internal affair" between the corporation and the shareholder that should be resolved by law of the state of incorporation. This article argues that this is an undesirable result that is based primarily upon an incorrect judicial interpretation of Section 307 of the Restatement (Second) of Conflicts of Law, and that the better view is that the applicable body of law should be selected through the use of a general choice of law analysis that also incorporates a number of additional factors other than where the corporation is chartered. Since there is by now enough variation among the state jurisdictions as to their piercing jurisprudence to sometimes be outcome-determinative, the method by which the applicable body of law is chosen can have significant results.
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